Hiscox Ltd

Hiscox Ltd Contents

2 Chairman’s statement
4th Floor
Wessex House Interim 5 Condensed consolidated

Statement
45 Reid Street interim income statement
Hamilton HM 12 6 Condensed consolidated
Bermuda
2011 interim statement of
comprehensive income
T +1 441 278 8300
7 Condensed consolidated
F +1 441 278 8301
interim balance sheet
E enquiries@hiscox.com
www.hiscox.com 8 Condensed consolidated
interim statement of changes
in equity
9 Condensed consolidated
interim cash flow statement
10 Notes to the condensed
consolidated interim financial
statements
22 Directors’ responsibility
statement
23 Independent review report by
KPMG to Hiscox Ltd

8862 08/11
Disclaimer in respect of forward looking statements
This interim statement may contain forward looking
statements based on current expectations of, and
assumptions made by, the Group’s management.
The Group is exposed to a multitude of risks and
uncertainties and therefore cannot accept any
obligation to publicly revise or update forward
looking statements as a result of future events or
the emergence of new information regarding past
events, except to the extent legally required.
Therefore undue reliance should not be placed
on any forward looking statements.
Corporate highlights

296.3p
Net asset value
per share

Group key performance indicators Gross premiums written £m

Gross premiums written £847.5m (2010: 904.3m)

Net premiums earned £554.7m (2010: £592.7m)

1,432.7

(Loss)/profit before tax (£85.6)m (2010: £97.2m)

904.3 847.5
Earnings per share (22.8)p (2010: 20.9p)

Interim dividend increased to 5.1p per share (2010: 5.0p)

Net asset value per share 296.3p (2010: 318.9p)

30 Jun 2010 31 Dec 2010 30 Jun 2011
Group combined ratio 116.9% (2010: 93.6%)

Return on equity annualised (13.3)% (2010: 14.8%)

Operational highlights Net asset value p per share

I nterim pre-tax loss of £85.6 million (2010: profit £97.2 million), reflecting the
costliest year ever for the industry. 332.7
318.9
ecord profit for UK business of £25.2 million (2010: £15.6 million) with gross
R
296.3
written premiums up by 8.8%.

Interim dividend increased to 5.1p (2010: 5.0p) in line with progressive dividend
policy.

Investment return of 1.0% for the half year, 2.0% annualised, (2010: 1.7%, 3.5%
annualised). 30 Jun 2010 31 Dec 2010 30 Jun 2011
US catastrophe reinsurance rates are improving, with average rate rises of 10%
and substantially higher rises in loss affected areas.

Reinsurance cover materially unimpaired.

High quality claims service recognised within the UK and London Market businesses.

Corporate highlights Hiscox Ltd Interim Statement 2011 1

Chairman’s statement
A pre-tax loss of £85.6 million
following a tumultuous first six
months when nature, accidents and
human error or malevolence have
thrown an unprecedented variety of
losses at us is a reasonable result in
the circumstances. 2011 is reported
to be the most expensive catastrophe
year to the insurance industry on
record after just six months, worse
than the full twelve months of 2005,
the previous highest on record. The
strategy of building retail businesses
to soften the blows of such a period
is vindicated by a sterling result from
our UK regional business. We will
continue to build the European and
US regional businesses to add their
contribution.
The London Market and Bermuda have
obviously been hit hardest, and I am
writing this as usual at the start of the
US wind season, but rates are rising
in the affected areas and a further loss
in the second half of the year should
accelerate that rise. History tells us
that feast always follows famine in the
insurance business.
Results
The result for the half year to 30 June
2011 was a pre-tax loss of £85.6 million
(2010: £97.2 million profit). Gross written
premiums reduced to £847.5 million
(2010: £904.3 million). Net earned
premiums were £554.7 million (2010:
£592.7 million). The Group combined
ratio rose to 116.9% (2010: 93.6%).
Earnings per share fell to a loss of 22.8p
(2010: +20.9p) and net assets per share
reduced to 296.3p (2010: 318.9p).
Dividend, balance sheet and capital
management
The board of Hiscox Ltd proposes to pay
an interim dividend for 2011 of 5.1p per
share (2010: 5.0p) in line with our policy
of progressive dividend growth. The
record date for the dividend will be 12
2 Chairman’s statement Hiscox Ltd Interim Statement 2011
August 2011 and the dividend will
be payable on 21 September 2011.
As with the final 2010 dividend, the
board of Hiscox Ltd proposes to offer a
scrip dividend alternative in respect of
the interim dividend, on and subject to
the terms and conditions of Hiscox Ltd’s
Scrip Dividend Alternative. The scrip
reference share price will be announced
on 15 August 2011. The final date
for electing to join Hiscox Ltd’s Scrip
Dividend Alternative in order to be eligible
to receive new shares in respect of the
interim dividend will be 31 August 2011.
The terms and conditions of Hiscox Ltd’s
Scrip Dividend Alternative, including how
to join the scheme, are contained in the
circular dated 14 March 2011 which is
available to view on Hiscox Ltd’s website
www.hiscox.com.
The net asset value per share was
reduced by the loss, the weakness of
the Dollar on our capital held in Dollars
in Bermuda and Guernsey and of course
by the payment of the dividend since the
year end.
Overall comment
The first six months have been notable
for the variety and size of losses
the industry has faced. On top of
earthquakes in New Zealand and Japan,
the industry suffered losses from floods
in Australia and the worst tornadoes
on record in the US. We have reserved
£210 million for catastrophe events
in the first half (2010: £110 million)
which we trust will stand the test of
time as has been true of our reserving
in recent years. We have also suffered
from some large attritional losses
across the Group, including moving oil
platforms, repatriation from the unrest
in North Africa, fine art losses and some
recessionary related claims in the UK.
Excellence in the rapid and fair payment
of claims is a differentiator we strive to
achieve. This period has been one of the
busiest the Hiscox claims team has ever
experienced, so it is pleasing that their
high performance has been recognised
by the industry. Our UK business won
the Personal and Commercial Claims
Team of the Year 2011, awarded
by Post Magazine. The Syndicate
claims team were placed in the top
three for managing claims in a recent
Gracechurch survey of London Market
brokers. Despite the most active first half
ever for catastrophe claims, Hiscox is
managing to process reinsurance claims
in two days.
Hiscox London Market
This division uses the global licences,
distribution network and credit rating
available through Lloyd’s to serve clients
throughout the world.
Loss before tax £26.6 million (2010:
profit £69.8 million)
Gross written £349.0 million
premiums (2010: £383.1 million)
Combined ratio 113.9% (2010: 82.2%)
Combined ratio
before monetary FX 109.6% (2010: 90.7%)
The large catastrophe reinsurance losses
were mitigated by strong profits in the
insurance lines
Reinsurance makes up 42% of Hiscox
London Market and this is dominated
by our catastrophe excess of loss
account. We reduced this account by
26% in January due to rate reductions.
The catastrophes reversed the decline
with rate increases averaging 10% and
substantially higher in affected areas,
and in May and June we underwrote
20% more than last year demonstrating
the underwriters’ nimble reaction to
market conditions. We are well prepared
to benefit from changes in other markets.
Rates in our insurance lines are mixed;
there is some upward pressure in
property and energy lines, though
rates are broadly flat elsewhere and we
continue to see small reductions in a few
areas such as terrorism. The offshore
energy market has been seriously
impacted by a number of significant
losses including storm damage to a
North-Sea Floating Production, Storage
and Offloading unit (FPSO), the Gryphon
Alpha. The insured loss is estimated at
up to US$950 million (with a net impact
to Hiscox estimated to be around
£14 million) and this is expected to
increase upward pricing pressure for
energy classes. Rates in big-ticket
professional indemnity lines continue
to disappoint, and we have continued
to reduce our writings appropriately.
The kidnap and ransom, and political
risks lines have paid significant claims
through their crisis management
services to corporate clients repatriating
employees to safety from those regions
affected by Arab Spring unrest resulting
in a hardening of rates and a tightening
of conditions.
In 2002 Robert Childs began a legal
challenge to recover money from the
airlines operating the planes involved
in the September 11 attacks on the
World Trade Center, with a successful
conclusion this year. Most of the
recovery goes to our reinsurers, but
we have received US$9 million net with
potential for some further recovery.
We have increased our 2012 capacity
for Syndicate 33 to £1 billion from £900
million in 2011, to take advantage of
hardening conditions.
Hiscox UK
This division’s core products are high
value household insurances, including
luxury motor, as well as commercial
insurances for small to medium
businesses which in the main use their
brains to make money as opposed
to infrastructure, and some specialist
technology and media. All three areas
made profits in the period.
Profit before tax £25.2 million
(2010: £15.6 million)
Gross written £182.9 million
premiums (2010: £168.1 million)
Combined ratio 87.9% (2010: 91.8%)
A record half year profit despite
competitive conditions, with steady
growth of 8.8%. Our ambition is to
make money whatever the state
of the market and this we have
achieved by concentrating on good
underwriting backed by great service
and our powerful brand. Rates are
being increased by some competitors
in commodity areas which could lead
to increases flowing through to our
specialist areas in future. Even if they
do not, we have winning products and
service which will win orders at our price.
Direct business grew 17% and is making
good profits. Now we have reached
critical mass, the future looks very robust
with opportunities to sell added products
to a large and good client base.
As always, we walked away from weakly
rated business, especially traditional
liability business such as accountants,
solicitors and IFAs.
We continued to invest in our brand
and in the Reputation Institute UK Pulse
survey for 2011, Hiscox was rated at the
upper level of financial services brands in
the UK. Hiscox scores particularly well in
products and services, performance and
governance. We will continue to leverage
our knowledge and expertise in brand
and marketing as we expand in Europe
and the US.
Hiscox Europe
This division’s core business is much
the same as the UK - household
and specialist commercial accounts.
Also written are larger fine art risks,
technology and media risks and kidnap
and ransom insurance, sometimes in
partnership with the London Market
division.
Profit before tax £0.1 million
(2010: £4.0 million)
Gross written £80.6 million
premiums (2010: £80.1 million)
Combined ratio 100.2% (2010: 96.8%)
Europe suffered some large losses
(un-correlated again) but this time
managed to break even. One was a
theft of paintings from a museum in
Holland, and there is the usual strong
likelihood that they will be recovered as
they are unsaleable in the open market;
another was a large kidnap claim and
the third was a technology loss. The
European teams are expanding in the
fine art, technology and kidnap and
Chairman’s statement Hiscox Ltd Interim Statement 2011 3
ransom accounts in which the Group
has a strong specialisation. These are
specialist and profitable areas for the
Group, and will benefit the European
teams greatly as they grow, but will
cause a measure of volatility until the
accounts are larger.
Our core household and small
commercial businesses did well. The
household business benefited from
some firm underwriting decisions which
have caused the loss of some business
and a reduction in income of 12%, but
the account returned to profit. Growth in
other product lines resulted in a modest
overall 4% increase (in local currency) for
Europe at the top line.
The small direct operation in France
which sells commercial liability products
to businesses with 0-10 employees is
growing steadily. The team is leveraging
our direct experience in the UK, and is
about to embark on a brand building
campaign later in the year.
Hiscox International
This division comprises our Bermuda,
USA and Guernsey units.
Loss before tax £82.2 million
(2010: £6.4 million)
Gross written £234.9 million
premium (2010: £273.1 million)
Combined ratio 160.1% (2010: 114.0%)
Combined ratio
before monetary FX 160.7% (2010: 106.8%)
Bermuda: Bermuda underwrites a
reinsurance catastrophe account
(Bermuda is the largest reinsurance
market in the world) and healthcare
business.
Gross written premiums declined by
9.3% as we walked away from weaker
rates earlier in the year. The catastrophes
have had an expected impact, and with
rates already rising and signs of capacity
constraints in some affected areas, the
outlook is promising for opportunities in
the second half. The small healthcare
book is growing slowly and profitably.
Chairman’s statement
continued
Guernsey: Guernsey underwrites kidnap
and ransom, personal accident and fine
art business.
Premium income grew slightly by 2.3%
driven by demand for our personal
accident and non-marine kidnap and
Investments
Assets under management at 30 June
2011 totalled £2,859 million (2010:
£2,705 million) and the annualised return
was 2.0% (2010: 3.5%) leading to an
investment return on financial assets
of £27.6 million (2010: £46.6 million).
With only meagre income continuing to
be available from cash and short dated
government bonds, the investment
portfolio has delivered the result that
we expected.
this should prove temporary as we still
believe that our bond managers will beat
cash. With the future of the Euro zone in
the balance, and, as I write, the US on
the verge of a technical default, capital
preservation remains our priority and
patience is required.
Outlook
We have suffered extraordinary losses
during the period, but that which does
not destroy you makes you stronger,
and we are definitely stronger. We
Condensed consolidated interim income statement
For the six month period ended 30 June 2011
6 months to 6 months to Year to
30 June 2011 30 June 2010 31 Dec 2010
Note £000 £000 £000
Income
Gross premiums written 7 847,451 904,326 1,432,674
Outward reinsurance premiums
(179,890) (220,627) (301,047)
Net premiums written
667,561 683,699 1,131,627
Gross premiums earned 688,207 735,218 1,435,118
Premiums ceded to reinsurers
(133,539) (142,469) (303,960)
Net premiums earned
554,668 592,749 1,131,158

ransom products. As mentioned above
in the London Market report, conditions
and rates in kidnap and ransom are
improving following a volatile period.
We suffered a large fine art loss where
a painting was damaged in transit.
In June this business celebrated US$ 1
billion aggregate of premium since it was
formed in 1998, a huge achievement
and throughout that time it has been a
significant profit contributor to the Group.
USA: Hiscox USA underwrites a book of
small commercial business to wholesale
brokers, and larger specialist business
mainly to retail brokers. In late 2010 it
launched a direct internet-based offering
for small commercial businesses.
There is a good story from Hiscox USA.
We narrowed our range of products in
2010 to concentrate on fewer specialist
lines, given weak market conditions
in those we exited, and focused our
distribution channels to better effect,
resulting in improved ratios this year.
Premium income reduced 15.0% (which is
less than budgeted), but the expense ratio
improved – a very satisfactory vindication
of the actions taken. Underwriting is
good, but we need to grow to keep
improving the expense ratio which is
always true for our start-up operations.
Our new and unique direct business for
small commercial businesses is growing
satisfactorily and developing brand
awareness among SME’s. When we are
fully satisfied that the IT is totally robust
we will put our foot on the marketing
accelerator. All indications show a
substantial appetite for our offering.
We began the year with a conservative
ambition to beat cash returns by being
prepared to take some credit and
equity risk but little interest rate risk.
This worked particularly well in the early
part of the year as confidence grew
that a sustainable economic recovery
in developed markets was underway.
However, more recent data, combined
with events in Europe and Japan,
suggested that this was a false dawn
and prompted an unexpected decline
in government bond yields, renewed
volatility in riskier assets and lower profits
from the portfolio in May and June. With
the authorities in our main markets of the
UK and the US apparently determined to
keep interest rates low whilst tolerating a
degree of inflation, real returns from cash
and bonds are likely to remain unexciting
for the balance of the year. Nevertheless,
we remain wary of strategies to enhance
yield and mindful of the damage that
can be done to bond portfolios in a
less benign environment. This caution
extends to an ongoing avoidance of the
sovereign debt of Greece, Ireland, Italy,
Portugal and Spain.
Our allocation to equities and hedge
funds during the period was largely
unchanged and added value to the
portfolio overall. Whilst the same
cannot be said for many fixed income
investments, equities in general appear
reasonably valued. However, the outlook
for equity markets is far from certain
with further volatility to be expected and
some scope for earnings disappointment
in 2012 if the low growth world implied
by bond markets persists. Group cash
levels have drifted up recently as a result
of distributions from Syndicate 33, but
need tough times in the catastrophe
reinsurance arena to keep the faint- Investment result 10 25,463 50,749 100,249
hearted at bay and to stop foolish Other revenues 11 7,625 10,595 22,079
competition from some commodity Revenue 587,756 654,093 1,253,486
players. We have preached discipline
Expenses
for years and have proved that discipline
Claims and claim adjustment expenses, net of reinsurance (438,350) (324,909) (570,997)
by cutting back the reinsurance account
Expenses for the acquisition of insurance contracts (127,417) (147,217) (269,891)
recently. Our reinsurance protection is
Operational expenses 11 (100,600) (103,728) (206,403)
virtually entirely intact, we are now facing Foreign exchange (losses)/gains 19 (3,547) 22,022 15,484
much better rates and the underwriters
Total expenses
(669,914) (553,832) (1,031,807)
are seizing the opportunities.
In our insurance and retail areas, some Results of operating activities (82,158) 100,261 221,679
are making good money despite fierce Finance costs 12 (3,500) (3,179) (10,090)
competition, and others are making Share of profit/(loss) of associates after tax 62 70 (223)
good gross underwriting profits and
(Loss)/profit before tax (85,596) 97,152 211,366
climbing remorselessly towards net
Tax expense 13 (1,445) (18,542) (32,566)
profit when they reach critical mass.
The brand is very strong in the UK. (Loss)/profit for the period (all attributable to owners of the Company)
(87,041) 78,610 178,800
We have had over a million hits on our
promotional web TV series in the US Earnings per share on profit attributable to owners of the Company
(www.leapyear-hiscox.tv), aimed at Basic 15 (22.8)p 20.9p 47.2p
young entrepreneurs, which is a strong Diluted 15 (22.8)p 20.0p 45.4p
start to brand recognition there, and
in Europe we are due to expand our
The notes to the condensed consolidated interim financial statements are an integral part of this document.
marketing shortly. We are patient starters
of businesses, some of which are in
healthy profit and the others heading
there.
Over the whole group, our product is
providing intelligent solutions to clients’
risks, and more importantly, paying
claims and repairing insureds after loss,
and this we have done well.
Robert Hiscox
Chairman
1 August 2011

4 Chairman’s statement Hiscox Ltd Interim Statement 2011 Condensed consolidated interim income statement Hiscox Ltd Interim Statement 2011 5
Condensed consolidated interim statement of comprehensive income Condensed consolidated interim balance sheet
For the six month period ended 30 June 2011, after tax At 30 June 2011
6 months to 6 months to Year to 30 June 30 June 31 December
30 June 2011 30 June 2010 31 Dec 2010 2011 2010 2010
£000 £000 £000 Note £000 £000 £000

(Loss)/profit for the period (87,041) 78,610 178,800 Assets

Other comprehensive income
Currency translation (losses)/gains (net of tax of £nil) (8,550) 34,363 11,729
Total other comprehensive (loss)/income (8,550) 34,363 11,729
Total comprehensive (loss)/income recognised (all attributable to owners of Company)
(95,591) 112,973 190,529
The notes to the condensed consolidated interim financial statements are an integral part of this document.
Intangible assets 64,882 53,283 64,108
Property, plant and equipment 18,578 19,230 19,742
Investments in associates 6,188 7,388 6,886
Deferred tax 14,077 19,049 14,077
Deferred acquisition costs 172,668 172,685 142,736
Financial assets carried at fair value 17 2,368,069 2,361,504 2,459,107
Reinsurance assets 14 530,661 586,905 462,765
Loans and receivables including insurance receivables 636,636 622,020 485,414
Cash and cash equivalents 502,954 357,544 336,017

Total assets
4,314,713 4,199,608 3,990,852

Equity and liabilities

Shareholders’ equity
Share capital 20,494 20,267 20,297
Share premium 29,294 14,864 15,800
Contributed surplus 245,005 264,023 245,005
Currency translation reserve 40,907 72,091 49,457
Retained earnings 810,765 830,956 935,555

Total equity (all attributable to owners of the Company)

1,146,465 1,202,201 1,266,114

Deferred tax 19,776 34,186 45,421

Insurance liabilities 14 2,672,123 2,528,114 2,279,867
Financial liabilities 17 75,061 239 20,457
Current tax 21,550 59,516 29,995
Trade and other payables 379,738 375,352 348,998

Total liabilities 3,168,248 2,997,407 2,724,738

Total equity and liabilities

4,314,713 4,199,608 3,990,852

The notes to the condensed consolidated interim financial statements are an integral part of this document.

6 Condensed consolidated interim statement of comprehensive income Hiscox Ltd Interim Statement 2011 Condensed consolidated interim balance sheet Hiscox Ltd Interim Statement 2011 7
Condensed consolidated interim statement of changes in equity Condensed consolidated interim cash flow statement
For the six month period ended 30 June 2011 For the six month period ended 30 June 2011
Currency 6 months to 6 months to Year to
Share Share Contributed translation Retained 30 June 2011 30 June 2010 31 Dec 2010
capital premium surplus reserve earnings Total Note £000 £000 £000
£000 £000 £000 £000 £000 £000
(Loss)/profit before tax (85,596) 97,152 211,366
Balance at 1 January 2011 20,297 15,800 245,005 49,457 935,555 1,266,114 Adjustments for:
Total recognised comprehensive income/(expense) Interest and equity dividend income (27,431) (32,351) (61,606)
for the period (all attributable to owners of the Company) – – – (8,550) (87,041) (95,591) Interest expense 12 3,500 3,179 10,909
Employee share options: Net fair value losses/(gains) on financial assets 15,876 (14,150) (25,672)
Equity settled share based payments – – – – 4,620 4,620 Depreciation and amortisation 4,671 3,062 7,065
Proceeds from shares issued 36 1,347 – – – 1,383 Charges in respect of share based payments 4,620 5,991 8,047
Deferred tax – – – – 1,742 1,742 Other non-cash movements (67) (812) 1,323
Shares issued in relation to Scrip Dividend 161 12,147 – – – 12,308 Effect of exchange rate fluctuations on cash presented separately (680) (2,890) (508)
Dividends paid to owners of the Company (note 16) – – – – (44,111) (44,111)
Changes in operational assets and liabilities:
Balance at 30 June 2011 20,494 29,294 245,005 40,907 810,765 1,146,465
Insurance and reinsurance contracts 201,640 163,754 141,646
Financial assets carried at fair value 60,642 117,029 (2,527)
Currency Financial liabilities carried at fair value 396 – 82
Share Share Contributed translation Retained Other assets and liabilities (19,777) (68,906) (23,704)
capital premium surplus reserve earnings Total
£000 £000 £000 £000 £000 £000 Cash flows from operations
157,794 271,058 265,602
Interest received 26,724 31,422 60,332
Balance at 1 January 2010 20,158 11,831 303,465 37,728 748,104 1,121,286
Equity dividends received 707 929 1,274
Total recognised comprehensive income/(expense)
Interest paid (3,271) (2,532) (4,628)
for the period (all attributable to owners of the Company) – – – 34,363 78,610 112,973
Current tax paid (33,793) (27,314) (51,580)
Employee share options:
Equity settled share based payments – – – – 5,991 5,991 Net cash flows from operating activities
148,161 273,563 271,000
Proceeds from shares issued 109 3,033 – – – 3,142
Deferred tax – – – – (1,749) (1,749) Cash flow from acquisition of subsidiaries – – (3,662)
Dividends paid to owners of the Company (note 16) – – (39,442) – – (39,442) Cash flow from sale and purchase of associates 723 – 468
Cash flows from the purchase of property, plant and equipment (590) (1,147) (3,462)
Balance at 30 June 2010 20,267 14,864 264,023 72,091 830,956 1,202,201
Cash flows from the purchase of intangible assets (6,160) (2,809) (15,591)

The notes to the condensed consolidated interim financial statements are an integral part of this document. Net cash flows from investing activities (6,027) (3,956) (22,247)

Proceeds from the issue of ordinary shares 1,383 3,142 4,108
Dividends paid to owners of the Company 16 (31,803) (39,442) (58,460)
Net increase/(repayments) of borrowings 54,543 (138,300) (118,539)

24,123 (174,600) (172,891)

Net cash flows from financing activities

Net increase in cash and cash equivalents

166,257 95,007 75,862

Cash and cash equivalents at 1 January 336,017 259,647 259,647

Net increase in cash and cash equivalents 166,257 95,007 75,862
Effect of exchange rate fluctuations on cash and cash equivalents 680 2,890 508

Cash and cash equivalents at end of period 20 502,954 357,544 336,017

The notes to the condensed consolidated interim financial statements are an integral part of this document.

8 Condensed consolidated interim statement of changes in equity Hiscox Ltd Interim Statement 2011 Condensed consolidated interim cash flow statement Hiscox Ltd Interim Statement 2011 9
Notes to the condensed consolidated interim financial statements
1 Reporting entity
Hiscox Ltd (the ‘Company’) is a
public limited company registered
and domiciled in Bermuda. The
condensed consolidated interim financial
statements for the Company as at,
and for the six months ended, 30 June
2011 comprise the Company and its
subsidiaries (together referred to as
the ‘Group’) and the Group’s interest in
associates. The Chairman’s statement
accompanying these condensed interim
financial statements forms the Interim
Management Report for the half year
ended 30 June 2011.
The Directors of Hiscox Ltd are listed in
the Group’s 2010 Report and Accounts.
A list of current Directors is maintained
and available for inspection at the
registered office of the Company located
at 4th Floor, Wessex House, 45 Reid
Street, Hamilton HM 12, Bermuda.
2 Basis of preparation
These condensed consolidated
interim financial statements have
been prepared in accordance with the
Listing Rules issued by the Financial
Services Authority. The information
presented herein does not include all
of the disclosures typically required for
full consolidated financial statements.
Consequently these financial statements
should be read in conjunction with the
full consolidated financial statements
of the Group as at, and for the year
ended, 31 December 2010 which are
available from the Company’s registered
10 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011
office or at www.hiscox.com. Except
where otherwise indicated, all amounts
are presented in Pounds Sterling and
rounded to the nearest thousand.
After making enquiries, the Directors have
an expectation that the Company and
the Group have adequate resources to
continue in operational existence for the
foreseeable future. For this reason the
condensed consolidated interim financial
statements have been prepared on a
going concern basis and are prepared
on the historical cost basis except
that pension scheme assets included
in the measurement of the employee
retirement benefit obligation, and certain
financial instruments including derivative
instruments are measured at fair value.
Taxes on income for the interim period are
accrued using the estimated effective tax
rate that would be applicable to estimated
total annual earnings.
The independent auditors have reported
on the Group’s full consolidated financial
statements as at, and for the year ended,
31 December 2010. The report of the
independent auditors was not qualified.
The amounts presented for the 30 June
2011 and 30 June 2010 periods are
unaudited.
These condensed consolidated interim
financial statements were approved by
the Board of Directors on 1 August 2011.
3 Accounting policies and methods
of computation
The accounting policies applied in these
condensed consolidated interim financial
statements are consistent with those
applied by the Group in its consolidated
financial statements as at, and for the
year ended, 31 December 2010. The
consolidated financial statements as at,
and for the year ended, 31 December
2010 were compliant with International
Financial Reporting Standards as
adopted by the European Union and in
accordance with the provisions of the
Bermuda Companies Act 1981. The
Interim Report is compliant with IAS 34
Interim Financial Reporting as adopted
by the European Union.
4 Financial, insurance and other risk
management
The Group’s financial, insurance and
other risk management objectives
and policies are consistent with
that disclosed in note 3 of the full
consolidated financial statements
as at, and for the year ended, 31
December 2010. The principal risks and
uncertainties are unchanged and may
be summarised as insurance risk, equity
price risk, interest rate risk, liquidity risk,
credit risk, currency risk, capital risk and
operational risk.
Since the onset of global concerns
regarding sub prime and credit issues
during Autumn 2007, the Group has
been mindful of the ongoing dislocation
in specific asset classes and their
resultant impact on investment markets
and the solvency of counterparties
more generally. The Group continues
to monitor all aspects of its financial
risk appetite and the resultant
exposure taken with caution, and has
consequently suffered insignificant
defaults on investments held during
the period under review.
As detailed in note 17, the Group’s
investment allocation is broadly
comparable to that at 31 December
2010 as outlined in the Group Report
and Accounts. The Group also continues
to be mindful of the processes required
for establishing the reliability of fair values
obtained for some classes of financial
assets affected by ongoing periods of
diminished liquidity. In order to assist
users, the Group has disclosed the
measurement attributes of its investment
portfolio in a fair value hierarchy in note
18 in accordance with the Amendments
to IFRS 7, Financial Instruments:
Disclosures.
The Group remains susceptible to
fluctuations in rates of foreign exchange.
In particular between Pound Sterling and
the US Dollar.
Strong treasury management has
ensured that the Group’s balance
sheet remains well capitalised and its
Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 11
operations are financed to accommodate
foreseen liquidity demands together with
a high level of capital sufficient to meet
future catastrophe obligations even if
difficult investment market conditions
were to prevail for a period of time.
5 Seasonality and weather
Historically the Group’s most material
exposure to catastrophe losses on
certain lines of business such as
reinsurance inwards and marine and
major property risk have been greater
during the second half of the calendar
year, broadly in line with the most active
period of the North Atlantic hurricane
season. In contrast a majority of gross
premium income written in these lines
of business occurs during the first half
of the calendar year. The Group actively
participates in many regions and if any
catastrophic events do occur, it is likely
that the Group will share some of the
market’s losses. Consequently, the
potential for significantly greater volatility
in expected returns remains during
the second half of the year. Details of
the Group’s recent exposures to these
classes of business are disclosed in
note 3 of the Group’s 2010 Report and
Accounts.
6 Related party transactions
Transactions with related parties during
the period are consistent in nature and
scope with those disclosed in note 38 of
the Group’s 2010 Report and Accounts.
7 Operating segments
The Group’s operating segments consist
of four segments which recognise
the differences between products
and services, customer groupings
and geographical areas. Financial
information is used in this format by
the chief operating decision maker in
deciding how to allocate resources and
in assessing performance. The format
is representative of the management
structure of the segments.
Notes to the condensed consolidated interim financial statements
continued

7 Operating segments continued

The Group’s four operating segments are:
London Market comprises the results of Syndicate 33, excluding the results of fine art, UK regional events coverage
and non US household business which is included within the results of the UK and Europe. It also includes the
fire and aviation business from Syndicate 3624 and the larger TMT business written by Hiscox Insurance Company
Limited. In addition, it excludes an element of kidnap and ransom and terrorism included in UK and Europe.
UK and Europe comprises the results of Hiscox Insurance Company Limited, the results of Syndicate 33’s fine art,
UK regional events coverage and non US household business, together with the income and expenses arising from
the Group’s retail agency activities in the UK and continental Europe. In addition, it includes the European errors and
omissions business from Syndicate 3624. It also includes an element of kidnap and ransom and terrorism written in
Syndicate 33. It excludes the results of the larger TMT business written by Hiscox Insurance Company Limited.
International comprises the results of Hiscox Insurance Company (Guernsey) Limited, Hiscox Insurance Company
(Bermuda) Limited, Hiscox Inc., Hiscox Insurance Company Inc. and Syndicate 3624 excluding the European errors
and omissions, fire and aviation business.
Corporate Centre comprises the investment return, finance costs and administrative costs associated with Group
management activities. Corporate Centre also includes the majority of foreign currency items on economic hedges and
intragroup borrowings. These relate to certain foreign currency items on economic hedges and intagroup borrowings,
further details of these can be found in note 13 of the Group’s Report and Accounts for the year ended 31 December
2010. Corporate Centre forms a reportable segment due to its investment activities which earn significant external
coupon revenues.

6 months to 30 June 2011 6 months to 30 June 2010 Year to 31 December 2010

London UK and Corporate London UK and Corporate London UK and Corporate

Market Europe International Centre Total Market Europe International Centre Total Market Europe International Centre Total
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000

Gross premiums written 348,993 263,510 234,948 – 847,451 383,072 248,165 273,089 – 904,326 572,748 454,692 405,235 – 1,432,674
Net premiums written 237,975 248,810 180,776 – 667,561 246,412 234,595 202,692 – 683,699 389,581 428,032 314,014 – 1,131,627
Net premiums earned 192,793 215,341 146,534 – 554,668 216,787 210,105 165,857 – 592,749 396,096 422,180 312,882 – 1,131,158

Investment result 8,174 5,806 8,067 3,416 25,463 25,004 5,746 12,938 7,061 50,749 39,068 17,244 27,624 16,313 100,249
Other revenues 4,008 1,748 1,869 – 7,625 6,675 1,139 2,774 7 10,595 12,054 3,671 5,836 518 22,079

Revenue 204,975 222,895 156,470 3,416 587,756 248,466 216,990 181,569 7,068 654,093 447,218 443,095 346,342 16,831 1,253,486

Claims and claim adjustment expenses, net of reinsurance (158,544) (102,235) (177,571) – (438,350) (120,393) (99,618) (104,898) – (324,909) (195,570) (213,001) (162,426) – (570,997)
Expenses for the acquisition of insurance contracts (43,173) (50,737) (33,507) – (127,417) (56,501) (50,469) (40,247) – (147,217) (92,832) (99,069) (77,990) – (269,891)
Operational expenses (18,998) (47,193) (28,309) (6,100) (100,600) (22,257) (42,807) (31,194) (7,470) (103,728) (44,733) (89,440) (59,419) (12,811) (206,403)
Foreign exchange (losses)/gains (10,194) 2,569 895 3,183 (3,547) 20,893 (4,487) (11,426) 17,042 22,022 11,669 (1,972) (2,610) 8,397 15,484

Total expenses (230,909) (197,596) (238,492) (2,917) (669,914) (178,258) (197,381) (187,765) 9,572 (553,832) (321,466) (403,482) (302,445) (4,414) (1,031,807)

Results of operating activities (25,934) 25,299 (82,022) 499 (82,158) 70,208 19,609 (6,196) 16,640 100,261 125,752 39,613 43,897 12,417 221,679
Finance costs (680) – (209) (2,611) (3,500) (382) (6) (225) (2,566) (3,179) (4,392) (9) (433) (5,256) (10,090)
Share of profit of associates after tax – – – 62 62 – – – 70 70 – – (323) 100 (223)

(Loss)/profit before tax (26,614) 25,299 (82,231) (2,050) (85,596) 69,826 19,603 (6,421) 14,144 97,152 121,360 39,604 43,141 7,261 211,366

100% ratio analysis

Claims ratio (%) 82.7 47.2 118.9

– 78.8 55.3 46.6 64.4 – 54.8 48.3 50.2 53.2 – 50.1
Expense ratio (%)
26.9 45.3 41.8 – 36.9 35.4 44.3 42.4 – 40.0 33.5 44.6 43.2 – 39.7

Combined ratio excluding foreign exchange impact (%) 109.6 92.5 160.7
– 115.7 90.7 90.9 106.8 – 94.8 81.8 94.8 96.4 – 89.8
Foreign exchange impact (%) 4.3 (1.2) (0.6) – 1.2 (8.5) 2.2 7.2 – (1.2) (2.1) 0.5 0.9 – (0.5)

Combined ratio (%)

113.9 91.3 160.1
– 116.9 82.2 93.1 114.0 – 93.6 79.7 95.3 97.3 – 89.3

Combined ratio excluding non monetary foreign exchange impact (%) 115.1 91.7 160.1
– 117.6 83.9 92.5 114.0 – 94.3 79.7 95.3 97.3 – 89.3

Total assets before intragroup items and eliminations

2,432,419 936,321 1,438,769 1,066,178 5,873,687 2,510,171 851,520 1,296,982 985,991 5,644,664 2,254,502 904,637 1,287,689 996,864 5,443,692

Intragroup items and eliminations (1,558,974)

(1,445,056)
(1,452,840)

Total assets 4,199,608

4,314,713 3,990,852

12 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 13
Notes to the condensed consolidated interim financial statements
continued
8 Net asset value per share 11 Other revenues and expenses
6 months to 6 months to
Year to
30 June 2011 30 June 2010 31 Dec 2010
30 June 2011 30 June 2010 31 Dec 2010
£000 £000 £000
Net asset Net asset Net asset
value NAV value NAV value NAV
(total equity) per share (total equity) per share (total equity) per share Agency related income 3,478 2,351 6,816
£000 pence £000 pence £000 pence Profit commission 3,462 6,549 10,616
Other underwriting income, catastrophe bonds 599 323 1,280
Net asset value 1,146,465 296.3 1,202,201 318.9 1,266,114 322.7 Other income 86 1,372 3,367
Net tangible asset value 1,081,583 279.6 1,148,918 304.7 1,202,006 315.8
Other revenues 7,625 10,595 22,079
The net asset value per share is based on 386,863,124 shares (30 June 2010: 377,003,655; 31 December 2010: 380,613,336), Wages and salaries 32,191 40,026 80,359
being the adjusted number of shares in issue at each reference date. Net tangible assets comprise total equity excluding Social security costs 5,157 5,459 13,689
intangible assets. Pension cost - defined contribution 2,805 2,704 5,209
Pension cost - defined benefit – – 1,700
9 Return on equity Share based payments 4,620 5,038 8,047
6 months to
6 months to Year to
Other expenses 39,672 39,417 74,668
30 June 2011 30 June 2010 31 Dec 2010 Marketing expenses 9,799 6,526 11,863
£000 £000 £000 Investment expenses 1,685 1,496 3,803
Depreciation and amortisation 4,671 3,062 7,065
(Loss)/profit for the period (87,041) 78,610 178,800
Opening shareholders’ equity 1,266,114 1,121,286 1,121,286 Operational expenses
100,600 103,728 206,403
Adjusted for the time weighted impact of capital distributions and issuance of shares (1,970) (19,485) (34,820)

Adjusted opening shareholders’ equity 1,264,144 1,101,801 1,086,466 12 Finance costs

6 months to 6 months to Year to
Annualised return on equity (%) (13.3) 14.8 16.5 30 June 2011 30 June 2010 31 Dec 2010
£000 £000 £000

10 Investment result
i) Analysis of investment result
6 months to 6 months to Year to
30 June 2011 30 June 2010 31 Dec 2010
The total investment result for the Group before taxation comprises: £000 £000 £000
Investment income including interest receivable 27,431 31,001 61,606
Net realised gains on financial investments at fair value through profit or loss 13,908 5,598 12,971
Net fair value (losses)/gains on financial investments at fair value through profit or loss (13,749) 10,001 24,272
Investment result - financial assets 27,590 46,600 98,849
Fair value (losses)/gains on derivative financial instruments (2,127) 4,149 1,400
Interest and expenses associated with bank borrowings 1,493 1,556 3,117
Interest and charges associated with Letters of Credit 1,613 1,617 3,216
Interest charges on experience account 393 – 3,748
Interest charges arising on finance leases 1 6 9
3,500 3,179 10,090
As at 30 June 2011, the total amount drawn by way of Letter of Credit to support the Funds at Lloyd’s requirement was $340
million (30 June 2010: $225 million, 31 December 2010: $165 million).

Total result 25,463 50,749 100,249 13 Tax expense

The Company and its subsidiaries are subject to enacted tax laws in the jurisdictions in which they are incorporated and
domiciled. The amounts charged in the condensed consolidated income statement comprise the following:
Investment expenses are presented within other expenses (note 11). Included within fair value (losses)/gains on derivative
instruments above, are derivative (losses)/gains on foreign exchange contracts. 6 months to 6 months to Year to
30 June 2011 30 June 2010 31 Dec 2010
£000 £000 £000
ii) Annualised investment yields
6 months to
6 months to Year to
30 June 2011 30 June 2010 31 Dec 2010
Return Yield Return Yield Return Yield Current tax
£000 % £000 % £000 % Expense for the year 25,348 60,750 58,228
Adjustments in respect of prior years – – (1,062)
Debt and fixed income securities 23,779 2.1 48,738 4.4 82,234 3.7
Equities and shares in unit trusts 2,668 3.7 (2,679) (3.9) 15,572 11.1 Total current tax
25,348 60,750 57,166
Deposits with credit institutions/cash and cash equivalents 1,143 0.6 541 0.3 1,043 0.3

27,590 2.0 46,600 3.5 98,849 3.6 Deferred tax

Credit for the year (22,606) (42,208) (22,532)
Adjustments in respect of prior years 11 – (691)
Effect of rate change (1,308) – (1,377)

Total deferred tax

(23,903) (42,208) (24,600)

Total tax charged to the income statement 1,445 18,542 32,566

The Group records its income tax expense based on the expected effective rate for the full year.

14 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 15
Notes to the condensed consolidated interim financial statements
continued Reconciliation of 100% disclosures above to Group’s share - net
14 Insurance liabilities and reinsurance assets
30 June 2011 30 June 2010
31 Dec 2010 Accident year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Current estimate of
Gross cumulative claims 254,127 337,252 549,319 743,431 454,774 555,315 653,094 572,589 798,549 634,091 5,552,541
Claims and loss adjustment expenses outstanding 1,941,986 1,775,154 1,706,404 Less: attributable to
Unearned premiums 730,137 752,960 573,463 external Names (49,335) (74,165) (125,596) (180,778) (94,715) (110,557) (120,400) (92,059) (121,102) (86,784) (1,055,491)

Total insurance liabilities, gross 2,672,123 2,528,114 2,279,867 Group share of current
ultimate claims estimate 204,792 263,087 423,723 562,653 360,059 444,758 532,694 480,530 677,447 547,307 4,497,050

Recoverable from reinsurers

Cumulative payments
Claims and loss adjustment expenses outstanding 395,855 415,072 374,193
to date (233,341) (316,163) (475,146) (649,114) (400,095) (465,585) (499,675) (360,861) (266,105) (54,031) (3,720,116)
Unearned premiums 134,806 171,833 88,572
Less: attributable to
Total reinsurers’ share of insurance liabilities
530,661 586,905 462,765 external Names 43,922 68,827 110,187 156,130 82,103 89,728 83,987 52,553 32,998 5,697 726,132

Group share of
Net cumulative payments (189,419) (247,336) (364,959) (492,984) (317,992) (375,857) (415,688) (308,308) (233,107) (48,334) (2,993,984)
Claims and loss adjustment expenses outstanding 1,546,131 1,360,082 1,332,211
Unearned premiums 595,331 581,127 484,891 Liability for 2002 to
2011 accident years
Total insurance liabilities, net
2,141,462 1,941,209 1,817,102 recognised on Group’s
balance sheet 15,373 15,751 58,764 69,669 42,067 68,901 117,006 172,222 444,340 498,973 1,503,066
Liability for accident years
Net claims and claim adjustment expenses include releases of £95m (30 June 2010: £93m, 31 December 2010: £133m) of
before 2002 recognised
reserves established in prior reporting periods. on Group’s balance sheet 43,065

The development of net claims reserves by accident years are detailed below: Total Group liability to
external parties included
Insurance claims and claims expenses reserves – net at 100% in the balance sheet, net†
1,546,131
†
This represents the claims element of the Group’s insurance liabilities and reinsurance assets.
Accident year ending 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total
31 December** £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
15 Earnings per share
Estimate of ultimate claims Basic
costs as adjusted for Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number
foreign exchange*:
of ordinary shares in issue during the period, excluding ordinary shares purchased by the Group and held in treasury as own shares.
at end of accident year** 274,783 362,007 576,830 680,891 532,362 694,392 771,723 689,890 805,337 634,091 6,022,306
one period later** 299,889 381,891 629,808 781,680 523,322 631,919 689,481 603,600 798,549 – 5,340,139 6 months to 6 months to Year to
30 June 2011 30 June 2010 31 Dec 2010
two periods later** 310,051 347,868 604,931 771,174 506,221 612,843 680,565 572,589 – – 4,406,242
three periods later** 286,443 358,813 567,594 746,230 462,697 569,359 653,094 – – – 3,644,230 (Loss)/profit for the period attributable to owners of the Company (£000) (87,041) 78,610 178,800
four periods later* 279,884 349,458 568,429 736,043 478,769 555,315 – – – – 2,967,898 Weighted average number of ordinary shares in issue (thousands) 381,999 375,956 379,064
five periods later** 266,400 344,505 553,521 737,124 454,774 – – – – – 2,356,324 Basic earnings per share (pence per share) (22.8)p 20.9p 47.2p
six periods later** 260,393
340,882 556,043 743,431 – – – – – – 1,900,749
seven periods later** 265,673
340,568 549,319 – – – – – – – 1,155,560 Diluted
eight periods later** 254,371
337,252 – – – – – – – – 591,623 Diluted earnings per share is calculated by adjusting the assumed conversion of all dilutive potential ordinary shares. The
nine periods later** 254,127 – – – – – – – – – 254,127 Company has one category of dilutive potential ordinary shares, share options and awards. For the share options, a calculation
is made to determine the number of shares that could have been acquired at fair value (determined as the average annual
Current estimate of
market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding
cumulative claims 254,127 337,252 549,319 743,431 454,774 555,315 653,094 572,589 798,549 634,091 5,552,541
share options. The number of shares calculated as above is compared with the number of shares that would have been issued
Cumulative payments
to date (233,341) (316,163) (475,146) (649,114) (400,095) (465,585) (499,675) (360,861) (266,105) (54,031) (3,720,116) assuming the exercise of the share options. If the inclusion of potentially issuable shares would decrease the loss per share, the
potentially issuable shares are excluded from the diluted earnings per share calculation.
Liability recognised at 6 months to 6 months to Year to
100% level 20,786 21,089 74,173 94,317 54,679 89,730 153,419 211,728 532,444 580,060 1,832,425 30 June 2011 30 June 2010 31 Dec 2010
Liability recognised in
respect of prior accident Profit for the period attributable to owners of the Company (£000) (87,041) 78,610 178,800
years at 100% level 58,259
Weighted average number of ordinary shares in issue (thousands) 381,999 375,956 379,064
Total net liability to Adjustment for share options (thousands) – 17,313 14,662
external parties at
Weighted average number of ordinary shares for diluted earnings per share (thousands) 381,999 393,269 393,726
100% level 1,890,684
Diluted earnings per share (pence per share) (22.8)p 20.0p 45.4p
* The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 30 June 2011.
** With the exception of the most recent development data for each accident year, which only relates to the six months ending 30 June 2011, the term
period refers to one full calendar year. Diluted earnings per share has been calculated after taking account of outstanding options under both employee share schemes
and also SAYE schemes.
16 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 17
Notes to the condensed consolidated interim financial statements
continued
16 Dividends paid to owners of the Company iv) Investment and cash allocation by currency
6 months to 6 months to Year to 30 June 2011 30 June 2010
31 Dec 2010
30 June 2011 30 June 2010 31 Dec 2010 % % %
£000 £000 £000
Sterling 24.0 26.6 26.3
Final dividend for the year ended: US Dollars 61.6 63.1 63.4
31 December 2010 of 11.5p (net) per share 44,111 – – Euro and other currencies 14.4 10.3 10.3
Interim dividend for the year ended:
31 December 2010 of 5.0p (net) per share – – 19,018
Second interim dividend for the year ended: 18 Fair value measurements
31 December 2009 of 10.5p (net) per share – 39,442 39,442 In accordance with the Amendments to IFRS 7 Financial Instruments: Disclosures, the fair value of financial instruments based on
44,111 39,442 58,460 a three-level fair value hierarchy that reflects the significance of the inputs used in measuring the fair value is set out below:

Level 1 Level 2 Level 3 Total

The final dividend for the year ended 31 December 2010 was part paid in scrip dividend. 3,227,459 shares were issued for the As at 30 June 2011 £000 £000 £000 £000
scrip dividend, with £31,803,000 being paid in cash.
Debt and fixed income securities 447,163 1,748,156 – 2,195,319
Equities and shares in unit trusts 70 147,000 8,213 155,283
An interim dividend of 5.1p (net) per ordinary share has been declared payable on 21 September 2011 to shareholders registered Deposits with credit institutions 5,717 – – 5,717
on 12 August 2011 in respect of the six months to 30 June 2011 (30 June 2010: 5.0p (net) per ordinary share). A scrip dividend Catastrophe bonds – 11,674 – 11,674
alternative will be offered to the owners of the Company. The dividend was approved by the Board on 27 July 2011 and Derivative financial instruments – 76 – 76
accordingly has not been included as a distribution or liability in this interim consolidated financial information in accordance with
Total
452,950 1,906,906 8,213 2,368,069
IAS 10 Events after the balance sheet date.

17 Financial assets and liabilities Level 1 Level 2 Level 3 Total

i) Analysis of financial assets carried at fair value As at 30 June 2010 £000 £000 £000 £000
30 June 2011 30 June 2010 31 Dec 2010
£000 £000 £000
Debt and fixed income securities 483,947 1,715,614 – 2,199,561
Equities and shares in unit trusts 174 134,519 4,942 139,635
Debt and fixed income securities 2,195,319 2,199,561 2,284,513 Deposits with credit institutions 7,839 – – 7,839
Equities and shares in unit trusts 155,283 139,635 154,862 Catastrophe bonds – 14,071 – 14,071
Deposits with credit institutions 5,717 7,839 4,280 Derivative financial instruments – 398 – 398

Total investments
2,356,319 2,347,035 2,443,655 Total
491,960
1,864,602 4,942
2,361,504

Catastrophe bonds 11,674 14,071 15,452

Derivative instruments 76 398 – Level 1 Level 2 Level 3 Total
As at 31 December 2010 £000 £000 £000 £000
Total financial assets carried at fair value 2,368,069 2,361,504 2,459,107
Debt and fixed income securities 516,528 1,767,985 – 2,284,513
Equities and shares in unit trusts 70 147,866 6,926 154,862
ii) Analysis of financial liabilities Deposits with credit institutions 4,280 – – 4,280
30 June 2011 30 June 2010 31 Dec 2010
Catastrophe bonds – 15,452 – 15,452
£000 £000 £000
Total
520,878
1,931,303 6,926
2,459,107
Borrowings from credit institutions carried at amortised cost 75,000 – 20,000
Derivative financial instruments 61 239 457 As at 30 June 2011, the Group had derivative financial liabilities of £61,000 which are classified as level 2 (30 June 2010:
Total financial liabilities
75,061 239 20,457
£239,000, 31 December 2010: £457,000).

The levels of the fair value hierarchy are defined by the standard as follows:
iii) Investment and cash allocation Level 1 – fair values measured using quoted prices (unadjusted) in active markets for identical instruments,

30 June 2011 30 June 2010 31 Dec 2010 Level 2 – fair values measured using directly or indirectly observable inputs or other similar valuation techniques for
£000 % £000 % £000 %
which all significant inputs are based on observable market data,
Debt and fixed income securities 2,195,319 76.8 2,199,561 81.3 2,284,513 82.2 Level 3 – fair values measured using valuation techniques for which significant inputs are not based on market
Equities and shares in unit trusts 155,283 5.4 139,635 5.2 154,862 5.6 observable data.
Deposits with credit institutions/cash and cash equivalents 508,671 17.8 365,383 13.5 340,297 12.2

Total 2,859,273 2,704,579 2,779,672 The fair values of the Group’s financial assets are based on prices provided by investment managers who obtain market data
from numerous independent pricing services. The pricing services used by the investment managers obtain actual transaction
prices for securities that have quoted prices in active markets. For those securities which are not actively traded, the pricing
services use common market valuation pricing models. Observable inputs used in common market valuation pricing models
include, but are not limited to, broker quotes, credit ratings, interest rates and yield curves, prepayment speeds, default rates and
other such inputs which are available from market sources.

18 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 19
Notes to the condensed consolidated interim financial statements
continued
18 Fair value measurements continued
The fair value of the Group’s investment in catastrophe bonds is based on quoted market prices or, where such prices are not
available, by reference to broker or underwriter bid indications.
6 months to 6 months to Year to
30 June 2011 30 June 2010 31 Dec 2010
£000 £000 £000
Investments in mutual funds comprise a portfolio of stock investments in trading entities which are invested in various quoted
Opening balance sheet impact of non retranslation of non monetary items (1,251) (3,207) (3,207)
investments. The fair value of shares in unit trusts are based on the net asset value of the fund reported by independent pricing
Gain/(loss) included within profit representing the non retranslation of non monetary items 2,759 5,136 1,956
sources or the fund manager.
Closing balance sheet impact of non retranslation of non monetary items 1,508 1,929 (1,251)
Included within Level 1 of the fair value hierarchy are Government bonds, Treasury bills and exchange traded equities which are
measured based on quoted prices.
20 Condensed consolidated interim cash flow statement
The purchase, maturity and disposal of financial assets is part of the Group’s insurance activities and is therefore classified as an
Level 2 of the hierarchy contains US Government Agencies, Corporate Securities, Asset Backed Securities and Mortgage
operating cash flow. The purchase, settlement and disposal of derivative contracts is also classified as an operating cash flow.
Backed Securities and Catastrophe bonds. The fair value of these assets are based on the prices obtained from both investment
managers and investment custodians as discussed above. The Group records the unadjusted price provided and validates
Included within cash and cash equivalents held by the Group are balances totalling £82,690,000 (30 June 2010: £78,428,000;
the price through a number of methods including a comparison of the prices provided by the investment managers with the
31 December 2010: £63,447,000) not available for use by the Group outside of the Lloyd’s Syndicates within which they are held.
investment custodians and the valuation used by external parties to derive fair value. Quoted prices for US Government Agencies
and Corporate Securities are based on a limited number of transactions for those securities and as such the Group considers
these instruments to have similar characteristics as those instruments classified as Level 2. Also included within Level 2 are units
held in traditional long funds and long and short special funds and over the counter derivatives, including event linked future
contracts.

Level 3 contains investments in a limited partnership and unquoted equity securities which have limited observable inputs on
which to measure fair value. Unquoted equities are carried at cost which is deemed to be comparable to fair value. The effect of
changing one or more of the inputs used in the measurement of fair value of these instruments to another reasonably possible
assumption would not be significant and no further analysis has been performed.

In certain cases, the inputs used to measure the fair value of a financial instrument may fall into different levels within the fair
value hierarchy. In this instance, the fair value of the instrument in its entirety is classified based on the lowest level of input that is
significant to the fair value measurement.

During the period, there were no significant transfers made between Level 1 and Level 2 of the fair value hierarchy. In addition,
there were no significant movements in the Level 3 assets from 31 December 2010.

19 Impact of foreign exchange related items

The net foreign exchange (losses)/gains for the year include the following amounts:

6 months to 6 months to Year to

30 June 2011 30 June 2010 31 Dec 2010
£000 £000 £000

Exchange (losses)/gains recognised in the consolidated income statement (3,547) 22,022 15,484
Exchange (losses)/gains classified as a separate component of equity (8,550) 34,363 11,729

Overall impact of foreign exchange related items on net assets (12,097) 56,385 27,213

The above excludes profit or losses on foreign exchange derivative contracts which are included within the investment result.

Net unearned premiums and deferred acquisition costs are treated as non monetary items in accordance with IFRS. As a result, a
foreign exchange mismatch arises caused by these items being translated at historical rates of exchange prevailing at the original
transaction date and not being retranslated at the end of each period. The impact of this mismatch on the income statement is
shown overleaf.

20 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 Notes to the condensed consolidated interim financial statements Hiscox Ltd Interim Statement 2011 21
Directors’ responsibility statement
The Directors confirm, to the best of our knowledge, that the Chairman’s statement and condensed consolidated interim
financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and the Interim
Statement includes a fair review of the information required by sections 4.2.7R and 4.2.8R of the Disclosure and Transparency
Rules of the United Kingdom’s Financial Services Authority, being:
1. an indication of important events during the first six months of the current financial year and their impact on the
condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for
the remaining six months of the year; and
2. related party transactions that have taken place in the first six months of the current year and that have materially
affected the consolidated financial position or performance of Hiscox Ltd during that period, and any changes in the
related party transactions described in the last annual report that could have such a material effect.
The individuals responsible for authorising the responsibility statement on behalf of the Board are the Chairman, RRS Hiscox and
the Group Finance Director, SJ Bridges. The statements were approved for issue on 1 August 2011.
22 Directors’ responsibility statement Hiscox Ltd Interim Statement 2011
Independent review report by KPMG to Hiscox Ltd
Introduction
We have been engaged by the company to review the condensed consolidated interim financial statements in the Interim
Statement for the six months ended 30 June 2011 which comprises the condensed consolidated interim income statement,
the condensed consolidated interim statement of comprehensive income, the condensed consolidated interim balance sheet,
the condensed consolidated interim statement of changes in equity, the condensed consolidated interim cash flow statement
and related explanatory notes. We have read the other information contained in the Interim Statement and considered whether
it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting
the requirement of the Disclosure and Transparency Rules (‘the DTR’) of the UK’s Financial Services Authority (‘the UK FSA’). Our
review has been undertaken so that we might state to the company those matters we are required to state to it in this report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company for our review work, for this report, or for the conclusions we have reached.
Directors’ responsibilities
The Interim Statement is the responsibility of, and has been approved by, the Directors. The Directors are responsible for
preparing the Interim Statement in accordance with the DTR of the UK FSA.
As disclosed in note 3, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the
EU. The condensed set of financial statements included in this Interim Statement has been prepared in accordance with IAS 34,
Interim Financial Reporting, as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the Interim
Statement based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on
Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements
in the Interim Statement for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with IAS
34 as adopted by the EU and the DTR of the UK FSA.
KPMG
Hamilton
Bermuda
1 August 2011
Neither an audit nor a review provides assurance on the maintenance and integrity of the Group’s website, including controls used to achieve this,
and in particular whether any changes may have occurred to the financial statements since first published. These matters are the responsibility of the
directors but no control procedures can provide absolute assurance in this area. Legislation in Bermuda and in the United Kingdom governing the
preparation and dissemination of financial statements differs from legislation in other jurisdictions.
Independent review report by KPMG to Hiscox Ltd Hiscox Ltd Interim Statement 2011 23